Question

2. From 1970 to 2000, the supply of college graduates to the labor market increased dramatically, while the supply of high school (no college) graduates shrunk. At the same time, the average real wage of college graduates stayed relatively stable, while the average real wage of high school graduates fell. How can these wage patterns be explained

Answer 1

College Graduates Labour : Increase in Labour Demand = Increase in Labour Supply

High School Labour : Decrease in Demand > Decrease in Supply

Step-by-step explanation:

Labour market equilibrium - wage rate & labour employed, is determined as per labour demand & labour supply.

Given : Supply of college graduates has increased, supply of non college (high school) labour has decreased. Still, average wage of college graduates stayed stable, average wage of non college (high school) labour has fallen.

This can be explained as : Demand of college graduates would also have increased (equal proportion to supply rise). So,excess supply is nullified by excess demand, & wages stay same.

Demand of non college (high school) labour would have decreased, in more proportion than supply fall. So, decrease in demand > decrease in supply creates excess supply & their wages fall.